As with its earlier proposals, Washington Mutual’s plan is based on WMI, JPMorgan Chase and the Federal Deposit Insurance Corp. settling lawsuits they filed against one another after the collapse of Seattle-based Washington Mutual Bank and the sale of its assets to JPMorgan Chase & Co. for $1.9 billion. It was the largest bank failure in U.S. history.

The plan calls for some $7 billion to be distributed to creditors and includes significant recoveries for shareholders, who often are left with nothing in bankruptcy cases.

The judge convened a three-day hearing today to consider the plan, which centers on the settlement of lawsuits pitting Washington Mutual, the Federal Deposit Insurance Corp. and JPMorgan against one another, the Associated Press reported.

The lawsuits were filed after the FDIC seized WaMu’s flagship bank in 2008 and sold its assets to JPMorgan in the largest bank failure in U.S. history.

The judge ruled in January that the proposed settlement was reasonable but refused to confirm WaMu’s plan until changes were made.

Washington Mutual shareholders oppose the new plan, saying it favors hedge funds who dominated negotiations with JPMorgan for their own gain and used inside information from the bankruptcy to trade in Washington Mutual securities.

While such business practices are deplorable, the following statement got me wondering about consumer responsibility: “WaMu and its brokers promoted this feature as a benefit for borrowers. Pay less on your mortgage and take that vacation you’ve always dreamed of. WaMu lured borrowers with a very low interest rate of about 1 percent. But this “teaser” rate was good only for one month. After that, the option ARM could have far higher interest rates than conventional 30-year fixed-rate loans.”

No one can make you refinance your home and adjustable rate mortgages are notoriously risky. What part did greedy or gullible consumers play in this mess?